PRICE AND WAGE STICKINESS, INFLATION AND PROFITS

摘要

This paper investigates the relationship between firm mark-ups and inflation. In sectors of the economy with industries characterized by flexible prices and sticky wages, mark-ups should respond positively to inflation. Industry mark-ups in sectors with both flexible prices and flexible wages theoretically may rise or fall in response to an increase in the price level. Mark-ups of industries in sectors of the economy in which prices are sticky should respond negatively to inflation, with an absolutely larger negative response occurring in sticky-price industries with flexible wages. Empirical analysis of US industries provides support for nearly all of these theoretical predictions.